DR.CHENJIAZI ZHONG

On March 26, 2012, the CFA Institute Middle East Investment Conference specifically focused on the economy in the Middle East and North Africa (MENA) region. Here are some personal opinions and thoughts on how to spur economic progress in the Middle East and North Africa region:

Make use of finance trough Islamic finance and Mediterranean investment banks and set up new institutions for arbitration and harmonization of different laws

Islamic banking activity is consistent with the principles of Islamic law (Sharia). The distinction is that Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money. Therefore, conventional derivate instruments are impossible in Islamic banking.

Have more women join the workforce and unlock human capital

“Human capital function is a strategic partner to regional businesses.” Although the MENA region has made significant progress in reducing gender gaps in human development, among those participating in the labor force, women face greater challenges than men in accessing employment opportunities, especially young women. The figures posted by World Bank suggest that even highly educated young women are increasingly vulnerable.

Get more out of social media and information technology

Social networking websites have played a critical role in the anti-government protests sweeping the MENA. In many countries in the region, the most technologically sophisticated ten percent of internet users will find a way to get what they want. Social media will continue contributing, with citizens using the tools to discuss what kinds of countries they now want to build.

Focus on infrastructure investing and public-private projects financing

In this regard, “MENA countries will have to create more jobs than in the past to meet the fast growing labor force. This will require sustaining the economic growth at around seven percent per year over a long period. Thus, MENA should substantially increase investments in infrastructure…” said the World Bank Country Director for Iran, Iraq, Jordan, Lebannon, and Syria. Specifically, Public-Private Partnerships can help bridge the investment gap in infrastructure, improve quality in the delivery of services and promote innovative business models.

Arab Financing Facility for Infrastructure (AFFI) is a partnership of the World Bank, International Finance Corporation and Islamic Development Bank designed to increase investment into infrastructure in the MENA region in an effort to drive economic growth and meet the needs of a young and growing population. AFFI aims to raise up to $1 billion to help catalyze financing for the $40 billion annual funding gap.

Boost trade with major trading partners

The U.S. hopes to strike more trade agreements in the MENA region and to reduce tariffs holding back the flow of goods and services. Tariffs on imports into the region are among the highest in the world, averaging about 12 percent. In addition, the U.S. Europe, and other important trading partners may have to do their bit by opening up the markets more to the MENA region’s exports.

Protect the region from financial crises

In return, the extent to which countries are able to respond to crisis depends on existing investment in human development, service provision and social protection. Although manay MENA countries have developed extensive social protection systems, they often suffer from institutional capacity gaps and inefficient resource allocation.

Risks and Opportunities

MENA countries will have to undertake some serious risks and deep address issues, e.g., labor force, governance, as on the political level, reform and regime transformation is always accompanied with risks and unexpected issues. The passage over the next five years will be quite difficult and challenging. In addition, these countries need to liberalize, especially to liberalize their labor force, economy and be more open. Geographical risk in MENA region can be seen by paying attention to oil price, particularly, see if oil price experiences a spike. By and large, the risks are manageable unless these countries will take much more debt.

Specific opportunities in MENA countries lie in the fact that a politically established environment and society is very friendly to the outside world, also including Egypt and Mediterranean, Libya will potentially post high rate; the pressure at regime has been transformed and removed.